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Challenge: “Family Financial Decision Dilemma”: Difference between revisions
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{{blc| Activity: “Family Financial Decision Dilemma” }} | {{blc| Activity: “Family Financial Decision Dilemma” }} | ||
Overview: | |||
Students act as financial advisors to a family that must choose between three significant financial goals: buying a house, investing in a business, or saving for a child’s college education. They analyze the trade-offs, risks, and benefits of each option and make a well-reasoned recommendation. | |||
Materials Needed: | |||
Family Profile: | |||
Income: $75,000 annually. | |||
Current Savings: $20,000. | |||
Debt: $10,000 in credit card debt at 12% interest. | |||
Monthly Expenses: $3,500 (housing, food, utilities, etc.). | |||
Options with Details: | |||
Buy a House: | |||
Cost: $250,000 with a $20,000 down payment. | |||
Monthly mortgage: $1,200 at a fixed 5% interest rate. | |||
Pros: Builds equity, stable housing, potential appreciation. | |||
Cons: Ties up savings, risk of unexpected maintenance costs. | |||
Invest in a Business: | |||
Initial Investment: $20,000. | |||
Expected annual return: 10%–20% but highly variable. | |||
Pros: Potential for significant income growth. | |||
Cons: High risk of failure, unpredictable cash flow. | |||
Save for College: | |||
Contribution: $20,000 into a 529 college savings plan. | |||
Expected annual return: 6% (market-dependent). | |||
Pros: Tax advantages, secure funding for education. | |||
Cons: Funds are restricted to education use, no immediate benefit. | |||
Decision-Making Worksheet: | |||
A table to compare costs, risks, benefits, and timelines for each option. | |||
Steps: | |||
Introduction (5 minutes): | |||
Present the scenario: | |||
"The Smith family must decide how to use their $20,000 savings. They are considering three options: buying a house, investing in a business, or saving for their child’s college. Your job is to analyze each option and recommend the best choice based on their financial situation and goals." | |||
Analysis Phase (15–20 minutes): | |||
Divide students into groups. Each group reviews the family profile and the three options. | |||
They calculate potential financial outcomes (e.g., loan costs, business risks, college fund growth) and weigh the emotional and long-term impacts of each choice. | |||
Presentation Phase (10 minutes): | |||
Each group presents their recommendation, including: | |||
Their chosen option. | |||
Key reasons for their choice. | |||
How they accounted for risks and trade-offs. | |||
Reflection and Discussion (10 minutes): | |||
Discuss the different recommendations and their implications. | |||
Explore alternative strategies, like combining goals (e.g., partial down payment and debt reduction). | |||
Socratic Questions: | |||
How do you balance short-term sacrifices with long-term benefits in financial decisions? | |||
Why might the emotional impact of financial stability or risk-taking influence the decision? | |||
What factors outside the numbers, such as family priorities or lifestyle goals, play a role in the final choice? | |||
Why It Works: | |||
Real-Life Application: Introduces students to major financial decisions families face. | |||
Critical Thinking: Encourages analysis of complex trade-offs and prioritization of goals. | |||
Teamwork: Simulating an advisory role fosters collaboration and debate. | |||
Optional Add-Ons: | |||
Add unexpected events (e.g., medical expenses or a job loss) to simulate real-world challenges. | |||
Include a fourth option, like paying off credit card debt, to expand the discussion on financial priorities. | |||
Allow groups to explore hybrid solutions, such as splitting the $20,000 among two options. | |||
